Onshore Competition Commercial Model Review

Ofgem require a critical review of ESO's proposed commercial model both in terms of the individual elements and the overall balance of the proposed package to likely investors and developers. This should be carried out for both large HVDC subsea cable projects (over GBP2bn) and smaller onshore projects (c.GBP500m) and be informed by relevant investor contacts.

The development of competition in the provision of onshore infrastructure delivery has been a long-term policy objective for Ofgem. Rather than awarding investment to incumbent monopoly TOs, a competition "for the market" can procure investment at lower cost to consumers, drive innovation and widen the supply chain for the delivery of critical network upgrades.

The need for changes to primary legislation to enable competition has previously limited our ability to date to fully develop and implement it. On 26 October the Energy Act 2023 received Royal Assent. This now allows for the awarding of electricity transmission and distribution licences through a competitive process and allows for delivery of network upgrades via competitive tender.

In the context of the scale of investment in networks required to deliver our net zero obligations the UK Government (HM Gov) has set out, via the Transmission Acceleration Action Plan (TAAP) that it is committed to announcing a suitable first project for competitive delivery by the end of 2024.

Having previously developed proposals for Late CATO competition (competitive tender takes place once detailed design work is completed) in 2016, Ofgem has more recently focused on the development of early competition (competitive tender takes place before the detailed design work is in place). In 2022, Ofgem decided that the Electricity System Operator (ESO) will carry out the early competition tenders and confirmed that it should complete the design of the commercial model and tender process.

Support is required from an organisation who will act in advisory capacity, by first carrying out a critical review of the Electricity System Operator's proposed commercial model for early competition in the electricity transmission sector.